USVI Services and Memorandum of Agreement

October 7, 2015 Fiscal Year 2015 Report to Congress

U.S. Customs and Border Protection

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Executive Summary CBP is America’s frontline, protecting the Nation from threats to our safety and economy and preventing terrorist and terrorist weapons from entering the United States and its territories. At the ports of entry (POE), CBP’s Office of Field Operations secures the flow of people and goods into and out of the country while facilitating legitimate travel and trade. OFO also operates at the POEs in the USVI to include the islands of St. Thomas, St. Croix, and St. John. CBP performs a number of law enforcement functions within the USVI, including pre-departure operations, sea and air passenger operations, trade and cargo operations, enforcement operations, and international mail operations. Despite the varied and increasing CBP workload in the USVI, resources from the U.S. Virgin Islands Deposit Fund (VIDF), the sole source for reimbursing the cost of customs inspections in the USVI, have either remained stagnant or have been reduced. In 2014, the CBP Commissioner and the USVI Governor signed a new memorandum of agreement that established an agreement on the administration of the VIDF. It also addresses the declining funds and increasing costs of CBP operations in the USVI by seeking alternative funding sources, increasing cost efficiencies in operations, and providing reimbursable services.

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USVI Services and Memorandum of Agreement

Table of Contents I. Legislative Language ................................................................................................ 1 II. Background ............................................................................................................... 2 III. Services to the USVI ................................................................................................. 3

A. Scope of Services ................................................................................................... 3 B. Financing ................................................................................................................ 7

IV. Memorandum of Agreement with USVI ................................................................... 8

A. 1994 Memorandum of Agreement (MOA) ............................................................ 8 B. 2014 MOA ............................................................................................................. 8

V. Conclusion ............................................................................................................... 10 VI. Appendices .............................................................................................................. 11

Appendix A – List of Acronyms and Abbreviations ..................................................... 11 Appendix B – USVI MOA ............................................................................................ 12

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I. Legislative Language This document was compiled pursuant to the legislative language set forth in Senate Report 113-198 that accompanies the Fiscal Year 2015 Department of Homeland Security Appropriations Act (P.L. 114-4). Senate Report 113-198 states:

U.S. VIRGIN ISLANDS

The Committee understands CBP and its legacy agencies have been performing both statutorily required services as well as additional services requested by the Government of the U.S. Virgin Islands [USVI] on a fully reimbursable basis, for nearly 100 years. A 1994 Memorandum of Agreement [MOA] between CBP and the USVI memorializes operational details regarding services requested by the USVI and the financing of those services. The Committee further understands that, due to fiscal constraints in recent years, CBP has been implementing cost savings measures without reducing services in the territory and is pursuing a new MOA with the Government of the USVI. The Committee directs CBP to report to the Committee on the scope of services performed, their financing, and the steps taken toward a new MOA with the USVI.

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II. Background The U.S. Virgin Islands (USVI) is an unincorporated territory of the United States that was purchased from Denmark in 1917. Although a U.S. territory, the USVI is expressly excluded by statute from the customs territory of the United States. Therefore, the USVI Legislature has the power to establish its own customs duties applicable to merchandise imported into the USVI. The current customs duties are an ad valorem rate with eligibility for exemption. Congress also required the former United States Customs Service, now U.S. Customs and Border Protection (CBP), to collect any such customs duties on behalf of the USVI. The primary statutes governing this arrangement are the Organic Acts of 1917, 1936, and (revised) 1954. Section 36 of the 1936 Organic Act, codified as 48 U.S.C. § 1406i, provides to CBP the authority and broad discretion to administer the customs laws of the USVI. As the USVI is outside of the customs territory of the United States, the authority granted via 48 U.S.C. § 1406i and 48 U.S.C § 1469c expands CBP’s authority to enforce USVI customs laws and to perform other activities to be funded by the Virgin Islands Deposit Fund (VIDF). All USVI customs duties are deposited into the VIDF and CBP costs then are reimbursed by the VIDF. CBP may not supplement the costs associated with collecting and enforcing the USVI’s customs duties and laws with its general appropriations. The VIDF is the sole funding source for these statutorily required activities. 48 U.S.C § 1469c provides CBP (or any U.S. Government agency or instrumentality) the authority to provide additional services to the USVI, at its behest, on a reimbursable basis. This authority has been used by CBP to fund pre-departure operations in the USVI. In addition to customs inspections and customs duty collection, CBP also provides immigration and agriculture inspection services as authorized by various statutes and funded by each activity’s respective user fee funding source. CBP currently is the largest law enforcement presence in the USVI, a territory positioned in a narcotics source and transit zone in the Caribbean.

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III. Services to the USVI A. Scope of Services Since CBP was established in 2003, its Office of Field Operations’ mission requirements have expanded to meet changing security objectives and accommodate fluctuations in global trade and international travel. Since 2008, there have been significant increases in inbound travel and trade volumes. CBP processed nearly 375 million passengers in the land, sea, and air environments in Fiscal Year (FY) 2014, up from 362 million in FY 2013. International air passenger volume increased by more than 17 percent between FY 2009 and FY 2014 and is currently at a record level. CBP estimates more than 115 million international air passenger arrivals in FY 2016 (comprised of 43 percent U.S. citizens and 57 percent foreign nationals). In FY 2014, $2.46 trillion worth of goods were processed through the ports of entry (POE). Inbound trade volume grew by more than 24 percent between FY 2010 ($1.99 billion) and FY 2014 and is expected to exceed previous records in the air, land, and sea environments in FY 2016. When these trends are analyzed in the USVI, the amount of outbound pre-inspected passengers destined for the continental United States (CONUS) locations also has increased 9.5 percent in St. Thomas and 2.5 percent in St. Croix since FY 2010. In the sea passenger environment, arriving passengers and crew volume alone has seen a 13-percent increase in St. Thomas since FY 2011. These increases are a significant economic driver in the USVI. 1. Air Passenger Operations CBP Officers (CBPO) and CBP Agriculture Specialists are assigned permanently to Cyril E. King Airport in St. Thomas, USVI, and Henry E. Rohlsen Airport in St. Croix, USVI, to provide adequate and expeditious inspection process for airport passengers arriving to the USVI. This inspection process is mandated by federal statute and can be done only by CBP personnel stationed in the USVI. All persons arriving at a POE (air and sea) in the USVI from a foreign country are subject to inspection by CBPOs. CBPOs are responsible for ensuring that arriving passengers comply with all immigration, customs, and agriculture laws and regulations. Each arriving traveler from a foreign location must complete a CBP declaration as well as other entry forms required by federal law. Currently, foreign arrivals and departures to and from the USVI are processed in the same manner as any other POE in the CONUS.

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2. Seaport Passenger Operations Seaport operations consist of the processing of cruise-line vessels, ferries, charter vessels, and private boats (and their passengers and crew) arriving into any of the three islands (St. Thomas, St. John, and St. Croix) from foreign locations. Several ferry boats and charter vessels currently are operating between the British Virgin Islands and the Edward Wilmoth Blyden Marine Terminal in St. Thomas or the St. John CBP Terminal. More than 100,000 passengers per year use these modes of transportation. These charter vessels conduct daily excursions for tourist travelers to and from the British Virgin Islands. The ferries serve as a mode of transportation for daily commuters to the USVI, as well as for students of the University of the West Indies. CBPOs and CBP Agriculture Specialists are assigned permanently at these two facilities to provide adequate and expeditious inspection process to ferry commuters. There are no foreign ferry operations being performed by CBP in St. Croix. Private boaters arriving from foreign countries must report their arrival to CBP in the USVI. As part of the CBP comprehensive effort to improve the security of our Nation’s borders while enhancing legitimate travel, including boaters, CBP has implemented the Small Vessel Reporting System to facilitate the reporting process for arriving boaters and to expedite the clearance of their vessels. The Small Vessel Reporting System is a Web-based, automated online reporting system that has significantly transformed and simplified the report requirements for this sector; however, the law still requires CBPOs to be available at the various POEs to perform face-to-face inspections of certain boaters based on risk and also to comply with immigration admissibility and customs clearance requirements. As a major tourist location, the USVI receives a significant number of private boat visitors arriving daily to private marinas and public seaport terminals. Private boats are processed at the St. John facility, the Blyden Terminal, the Yacht Heaven Marina, and the Gallows Bay Station in St. Croix. Another important CBP mission is the inspection of cruise-line passengers and crew arriving in the USVI. St. Thomas is considered an important port of call for cruise ships traveling in the Caribbean. CBP has processed close to 30,000 cruise ship passengers per week during high season. Cruise-line companies such as Carnival, Norwegian, Disney, Royal Caribbean, Seaborne, Celebrity, and Princess currently are operating in the Caribbean and listing St. Thomas as a port of call. These vessels may carry between 2,000 to 3,000 passengers (not including crew) per trip to visit the port of St. Thomas.

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3. Pre-departure Operations CBP also provides pre-departure inspection of passengers traveling to the CONUS. Travelers destined to the CONUS locations on nonstop flights constitute the majority of the air passengers currently being processed in the two international airports located in the USVI. This process is called “pre-departure inspection” and is conducted by CBPOs and CBP Agriculture Specialists before passengers board the aircraft heading to the CONUS at both St. Thomas and St. Croix. Based on a 1966 request from the Government of the U.S. Virgin Islands, CBP performs pre-departure inspections in the USVI prior to air passenger departure. This service was requested and is performed on a fully reimbursable basis under U.S. law applicable to U.S. territorial governments. However, since 2012, some of these costs have been absorbed by CBP due to collections in the VIDF being insufficient to cover the full cost of pre-departure inspections. Under a new agreement, CBP will not seek any reimbursement from the VIDF for pre-departure operations in the USVI in FY 2015 and FY 2016. Pre-departure operations are unique to the USVI based on its legal status as outside of the customs territory of the United States. Pre-departure is a unique service that is utilized by many U.S. citizens returning to the CONUS, but it can be considered analogous to preclearance operations in the Caribbean only in terms of the outcome for the passenger (i.e., arrival at a domestic terminal). 4. Cargo and Trade Operations Cargo Operations consists of the processing of all cargo arriving into any of the three islands (St. Thomas, St. John, and St. Croix). It covers airport and seaport cargo. The processing of cargo in the USVI is unique because it operates under the USVI’s legal status as outside of the customs territory of the United States. In short, the customs laws of the United States, e.g., the Harmonized Tariff Schedule of the United States, do not apply to goods entering the USVI. As a result, the USVI customs duty is different from the one applicable in the CONUS. Also, many of the trade-related automation applications used by CBP in the CONUS cannot be used in the USVI. As such, most cargo and trade transactions are performed manually by CBP staff to ensure compliance with national and local requirements. CBPOs, Import Specialists, and Entry Specialists have to process manually almost all documentation and data related to the entry process.

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5. International Mail Operations All incoming international mail that is intended for delivery in the customs territory of the United States and the USVI is subject to CBP inspection and release. Along with the mail inspection and release process, CBP is responsible for assessing duties on informal mail entries and directing addressees to file formal entries on high-value shipments or as otherwise required by law. CBP also is responsible for examining mail for contraband or other illegally imported articles as well as restricted or prohibited merchandise. There is a CBP international mail facility (IMF) located in St. Thomas (Sugar Estate Post Office, USVI), which processes all international mail arriving from Caribbean neighbor islands. Having an IMF in the USVI facilitates the processing of foreign mail from the eastern Caribbean. Were it not for this facility, this mail would have to be processed at an IMF in the CONUS before arriving in the USVI. 6. Enforcement Operations CBP operates various enforcement teams, both in St. Thomas and St. Croix, that are responsible for performing traditional enforcement duties similar to other CONUS locations, including anti-smuggling operations in the air and sea environment, the canine program in all environments, the operation of nonintrusive inspection technology (such as X-ray vans), vessel and aircraft searches, emergency response, special operations with other local and federal agencies, and assistance to other agencies when solicited. In addition, these teams are responsible for implementing increased security and enforcement posture operations, which consist of enhancing CBP presence at seaport terminals and marinas and responding to calls related to the landing of illegal immigrants. The USVI’s (mainly St. John’s) proximity to other foreign nation islands makes it approachable on all sides and the geographical location facilitates island hopping by traffickers and illegal aliens who wish to minimize exposure to law enforcement entities. The main characteristic of CBP’s enforcement teams is their capability to mobilize assets quickly to respond to all kind of threats. For example, CBP enforcement teams periodically participate in joint DHS operations. Local and federal law enforcement agencies partner with the enforcement teams’ assets, resources, and authorities to perform a series of surge operations that have an effective impact on criminal and smuggling organizations. The operations have resulted in the apprehension of illegal aliens in the USVI and a significant number of drug seizures.

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B. Financing Despite the varied and increasing CBP workload in the USVI, resources either remain stagnant or have been reduced with decreasing economic activity through imports slowing collections below even revised projections. This means that the workload is increasing dramatically but resources from the VIDF are not increasing at the same rate and are, in fact, decreasing funding power. In order to offset the decrease in collections, CBP has been reducing staff and shifting the remaining workforce to maintain the most highly prioritized missions. VIDF COLLECTIONS

FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018Actuals $ 12,017 $ 11,671 $ 11,621Projected** $ 12,219 $ 12,407 $ 12,656 $ 11,789 $ 11,867 $ 11,925 $ 11,983*In thousands**Based on OMB Submissions CBP does not receive an annual appropriation from the United States Congress specifically for its operations in the USVI. CBP must use the VIDF to reimburse the cost of customs inspections in the USVI and may not use any additional sources of funding for these activities. Agriculture inspections and immigration inspections are funded through their respective user fees, the Agriculture Quarantine Inspection User Fee and the Immigration Inspection User Fee.

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IV. Memorandum of Agreement with USVI A. 1994 Memorandum of Agreement (MOA) CBP and the Government of the U.S. Virgin Islands (GVI) signed an MOA in 1994 to outline the statutorily governed arrangement for services to be performed by (now) CBP in the USVI and the funding source for these required customs inspection activities, namely the VIDF. The 1994 MOA specifically identified two reimbursable services that CBP has performed at the USVI’s request under 48 U.S.C. § 1469c, in addition to the collection of customs duties. One reimbursable service is the pre-departure inspection of air passengers departing the USVI for locations in the continental United States; the other is the collection of “wharfage and tonnage” port user fees. This user fee is no longer relevant as it was abolished. In 2012, the GVI sought to renegotiate the 1994 MOA. CBP’s first official in-person negotiations with the USVI took place in September 2012. The genesis of these multi-year discussions centers around three primary factors: the USVI’s declining economic state1; CBP’s perceived increasing costs due to the creation of DHS and significant presence in the islands; and increased crime in the islands due to their location in a very active drug trafficking zone in the Caribbean. CBP and the GVI engaged in negotiations between September 2012 and December 2014. Final in-person negotiations took place in St. Thomas on December 16-17, 2014. These meetings resulted in a finalized MOA and Annex (regarding current services). The MOA and the Annex were signed by the USVI Governor on December 31, 2014, and by the CBP Commissioner on January 2, 2015. B. 2014 MOA The primary purpose of the 2014 MOA is to establish an agreement on the administration of the VIDF. However, during negotiations, CBP and the GVI discussed numerous other initiatives that informed the final MOA. 1. Pre-departure Operations in the USVI Based on a GVI request made in 1966 and under 48 U.S.C § 1469c authority, the VIDF was used to offset the cost of pre-departure operations in the USVI. The final 2014 MOA 1 According to the U.S. Department of Commerce, Bureau of Economic Analysis, the estimates of Gross Domestic Product (GDP) for the U.S. Virgin Islands show that real GDP – GDP adjusted to remove price changes – decreased 13.2 percent in 2012 after decreasing 6.6 percent in 2011. (Available at: http://www.bea.gov/newsreleases/general/terr/2013/vigdp_080213.pdf)

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relies on an agreement between the GVI and the CBP Commissioner that CBP will fund pre-departure operations in the USVI in Fiscal Year (FY) 2015 and FY 2016. During this time, GVI and CBP will partner to explore alternative sources of funding for pre-departure operations in the USVI. 2. Cost Efficiencies in the USVI CBP has robust business transformation initiatives, automation, and modernization efforts at most of the POEs where CBP operates. CBP’s efforts to achieve efficiencies are designed to facilitate lawful trade and travel while implementing cost-saving measures. The USVI, wherever feasible, committed to partner with CBP in efforts to improve services and achieve cost efficiencies in the USVI. 3. CBP Reimbursable Services Under the 2014 MOA, the USVI may request additional services from CBP on a reimbursable basis. The additional services may not include the current services as detailed in the MOA nor CBP’s costs to provide customs pre-departure inspections commensurate with current service levels at the existing USVI locations. The MOA also outlines the scope of the additional services that may be requested as well as the mechanism by which the USVI will request and pay for these additional services.

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V. Conclusion CBP is currently the largest law enforcement presence in the U.S. Virgin Islands (USVI), a territory that is well-positioned for the tourist industry but also within a narcotics source and transit zone in the Caribbean. As part of its duties, CBP provides an array of services in the USVI, from customs inspections and customs duty collection to immigration and agriculture inspection services. The renegotiated memorandum of agreement (MOA) between CBP and the Government of the U.S. Virgin Islands (GVI) establishes an agreement on the administration of the U.S. Virgin Islands Deposit Fund. It addresses the declining funds and increasing costs of CBP operations in the USVI by seeking alternative funding sources, increasing cost efficiencies in operations, and providing reimbursable services. Going forward, CBP and the GVI will continue to work together to implement the provision of the 2014 MOA.

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VI. Appendices Appendix A – List of Acronyms and Abbreviations

Acronym/Abbreviation Definition CBP U.S. Customs and Border Protection CBPO CBP Officer CONUS Continental United States DHS Department of Homeland Security FY Fiscal Year GVI Government of the U.S. Virgin Islands IMF International Mail Facility MOA Memorandum of Agreement OFO Office of Field Operations POE Port of Entry USVI U.S. Virgin Islands VIDF U.S. Virgin Islands Deposit Funds

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Appendix B – USVI MOA

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